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ILV - Illovo Sugar - Interim Results For The Six Months Ended 30 September
2007 and dividend declaration
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
Interim Results for the six months ended 30 September 2007
- Major new investment in Mali
- Zambian expansion well advanced
- Revenue up 5% to R3 428 million
- HEPS up 7% to 81.3 cents
- Estimated annual sugar production up 9% to 1.875 million tons
- Interim dividend up 10% to 33 cents per share
Don MacLeod, Managing Director, said:
"We are announcing today a major new investment in Mali for the construction
of a 200 000 ton sugar mill, ethanol plant and electricity co-generation
facility. This exciting investment fits with our strategy of expanding the
group`s production base in Africa and to be the leading, lowest-cost sugar
producer on the continent. We are also pleased with the progress of our
expansion in Zambia with the first phase of the commissioning due in April
2008.
Our sugar production is expected to be higher this year despite variable
weather conditions across our operations. We anticipate a modest increase in
our earnings for the year, considering the stronger rand and lower world sugar
prices."
Enquiries:
Illovo Sugar 031 508 4300
Don MacLeod, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill 011 447 3030
Nicholas Williams 083 607 0761
Basis of preparation
This report incorporates financial statements which reflect both actual
results based on International Financial Reporting Standards ("IFRS") and
those determined on a sugar season basis which in the directors` opinion
provide a better basis for evaluating the financial performance of the
company.
The sugar industry is a seasonal agriculturally based business and the payment
processes are such that cash flows throughout the season, which runs from 1
April to 31 March, are derived from the expected tonnages and prices that will
be achieved for the season as a whole. The effect of this is that product
sales tonnages and prices received, and raw material prices paid are
provisional in nature until the conclusion of the season. For this reason the
directors consider that profit figures based on actual cash flows may not
represent the best basis for evaluating the performance and the results for
the period. In respect of the sugar season basis results, operational profits
for cane growing and sugar production comprise the company`s view of the
position at 30 September 2007 as it relates to the season as a whole. All
other results are based on actual performance. The amounts disclosed in
respect of cane growing and sugar production operations are based on a profit
forecast for the year ending 31 March 2008 which has been examined by our
auditors, Deloitte & Touche. Their unqualified accountants` report is
available for inspection at the company`s registered office.
The unaudited actual results for the six months ended 30 September 2007 have
been prepared using accounting policies that comply with IFRS and are prepared
in accordance with IAS34 (Interim financial reporting). The accounting
policies adopted are consistent with those of the previous financial period.
Review
On a sugar season basis, the group has achieved headline earnings of R284.0
million for the half year, reflecting a 10% improvement over the same period
in the previous year. Headline earnings per share of 81.3 cents represents a
7% increase.
Despite an increase in sugar production and improved domestic market sales and
prices, group operating profit was similar to that of last year, largely as a
result of lower world and regional sugar prices.
Borrowings of R1 577.4 million are R124.3 million higher compared to the same
period last year and net financing costs have increased substantially to R72.7
million, mainly as a result of increased capital expenditure and higher
interest rates.
Taxation has decreased due to the Zambian subsidiary being recognised as an
agricultural operation for tax purposes and also being granted expansion-
related tax allowances. This reclassification as an agricultural operation
gave rise to a one-off tax credit in respect of past years which has impacted
the tax cost in the current financial year. The group`s tax rate has
consequently reduced to 19.9%, but can be expected to increase to around 27%
in the following year.
The contributions to operating profit were: sugar production 62%, cane growing
28% and downstream 10%. By country, contributions were South Africa 21%,
Malawi 40%, Zambia 17%, Swaziland 9%, Tanzania 10% and Mozambique 3%.
The season-to-date has been affected by variable weather conditions. In South
Africa and Swaziland, after a very dry winter, welcome rains were received in
late spring. In Malawi localised flooding at Nchalo early in the year
negatively impacted on cane yields, whilst in Tanzania, abnormal heavy winter
rain during August disrupted factory operations. However, the rest of the
group has experienced normal weather conditions which, with effective
irrigation and long sunshine hours, have been conducive to good cane growth.
In general, the sugar factories have performed satisfactorily. Assuming
normal growing and operating conditions for the remainder of the season, group
sugar production is expected to be around 1.875 million tons which is 150 000
tons above that of last year. The main increases in the production forecasts
have occurred in South Africa, Tanzania, Zambia and Mozambique.
Downstream operations have performed well and output is anticipated to be
similar to that of last year. World prices of furfural and its derivative
products have been strong.
The world raw sugar price has been volatile, but recently has stabilised at
around US10 cents/lb. Last year, the world price rose to almost US20 cents/lb
and the South African sugar industry achieved an average realisation of
US14.92 cents/lb in respect of world raw sugar sales, whereas in the current
year, it is anticipated that the average price will only be slightly over US10
cents/lb. The lower world price has also impacted negatively on regional
sales.
Improved opportunities in the European Union (EU) continue to evolve as EU
market access arrangements are modified in terms of ongoing trade
negotiations. The European Commission has served notice that it will bring to
an end the current African, Caribbean and Pacific (ACP) Sugar Protocol Quota
arrangements on 30 September 2009. It has offered, against the background of
the reformed EU sugar sector, and in the context of an alternative market
access offer to be incorporated into regional Economic Partnership Agreements
from 1 January 2008, to honour and extend the terms of the Sugar Protocol to
30 September 2009 by granting additional access volumes to both ACP states and
suppliers from Least Developed Countries (LDCs) within this period.
Thereafter until 2015, the EU envisages duty free, quota free access for LDCs
and increased access for those ACP states able to supply. From 2015 onwards,
it is intended that duty free, quota free terms would apply to all ACP and LDC
suppliers, subject to normal trade safeguards. These developments will
ultimately benefit the group, as four of the countries in which it operates,
Malawi, Zambia, Tanzania and Mozambique, are classified as LDCs, whilst
Swaziland is a member of the ACP group.
The major expansion of the group`s production facilities in Zambia is well
advanced and significant progress has been made in the areas of canal
construction and new land development. The factory upgrade is being phased
over two years with the first phase due for commissioning in April 2008, in
time to receive increased cane supplies from the first of the estate and
grower cane expansions. The second phase of factory expansion is due for
completion in April 2009, after which the factory will have the capacity to
produce 440 000 tons of sugar per annum, an increase of 200 000 tons per annum
compared to current capacity.
The Board has approved a major equity investment of R394 million in a public /
private partnership with the Government of Mali, for the construction in Mali,
of a new sugar mill which will ultimately produce 200 000 tons sugar per
annum, an ethanol plant which will produce 15 000 kilolitres per annum, and an
electricity co-generation facility. Illovo will hold a 70% equity stake in
this industrial entity, with the balance to be held by private investors and
the Government of Mali. The total cost of the factory complex is estimated to
be R1.4 billion, of which 40% will be equity-funded and the balance debt-
funded. In addition, Illovo will manage a Government-sponsored agricultural
development, to produce around 1.5 million tons cane per annum. Sugar
production will commence in December 2009, reaching full capacity two years
later. The investment is subject to finalising the requisite concessional
debt funding for the agricultural development.
Dividend
An interim dividend of 33.0 cents per share (2006: 30.0 cents) has been
declared. It is anticipated that for the full year the dividend will be twice
covered by headline earnings.
Prospects
Results for the current year will be impacted by the level of the rand
compared to other currencies, the world sugar price, and final sugar
production. Provided there is no major change to these factors, it is
anticipated that, for the year ending 31 March 2008, modest growth in earnings
in real terms will be achieved. The profit forecast has been examined by our
auditors, Deloitte & Touche, and their unqualified accountants` report is
available for inspection at the company`s registered office.
On behalf of the Board
R A Williams D G MacLeod Mount Edgecombe
Chairman Managing Director 13 November 2007
GROUP INCOME STATEMENT
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2007 2006 2007 2006 Change 2007
Notes Rm Rm Rm Rm % Rm
Revenue 2 959.7 2 822.1 3 428.0 3 258.9 5 6 263.6
Operating profit 695.3 639.0 523.7 516.1 1 1 034.3
Net financing
costs 1 72.7 32.9 72.7 32.9 96.4
Profit before
material items 622.6 606.1 451.0 483.2 937.6
Material
items 2 0.8 0.4 0.8 0.4 4.2
Profit before
Taxation 623.4 606.5 451.8 483.6 942.1
Taxation 126.2 191.8 89.9 159.1 288.3
Profit after
taxation 497.2 414.7 361.9 324.5 653.8
Attributable to
outside shareholders
in subsidiary
companies 103.4 86.8 76.3 64.7 137.3
Net profit attributable
to shareholders in
Illovo Sugar
Limited 393.8 327.9 285.6 259.8 10 516.5
Determination of headline earnings:
Net profit attributable
to shareholders 393.8 327.9 285.6 259.8 10 516.5
Adjusted for:
Profit on disposal
of property (0.8) (0.4) (0.8) (0.4) (3.7)
(Profit)/loss on
disposal of plant
and equipment (0.8) (0.2) (0.8) (0.2) 2.5
Headline earnings 392.2 327.3 284.0 259.2 10 515.3
Number of shares
in issue (millions) 349.3 348.7 349.3 348.7 348.9
Weighted average number
of shares on which headline
earnings per share are
based (millions) 349.2 342.3 349.2 342.3 345.5
Headline earnings per
share (cents) 112.3 95.6 81.3 75.7 7 149.1
Diluted headline earnings
per share (cents) 111.5 94.8 80.9 75.2 147.7
Dividend per share
(cents) 33.0 30.0 33.0 30.0 10 75.0
ABRIDGED GROUP BALANCE SHEET
Actual Sugar season basis Actual
Unaudited Unaudited Audited
30 September 30 September 31 March
2007 2006 2007 2006 2007
Rm Rm Rm Rm Rm
ASSETS
Non-current
Assets 2 806.4 2 661.7 2 806.4 2 661.7 2 576.8
Property, plant
and equipment 2 064.2 1 910.4 2 064.2 1 910.4 1 841.0
Cane roots 691.5 677.8 691.5 677.8 661.6
Investments 50.7 73.5 50.7 73.5 74.2
Current assets 3 468.3 3 082.1 3 468.3 3 082.1 1 891.4
Inventories 1 676.8 1 433.3 1 676.8 1 433.3 510.1
Growing cane 733.0 739.8 733.0 739.8 743.1
Accounts
receivable 1 058.5 840.4 1 058.5 840.4 638.2
Financial
instruments - 68.6 - 68.6 -
Total assets 6 274.7 5 743.8 6 274.7 5 743.8 4 468.2
EQUITY AND LIABILITIES
Total equity 2 457.9 2 161.9 2 322.6 2 071.7 2 228.3
Equity holders`
interest 1 965.8 1 706.4 1 857.6 1 638.3 1 771.7
Minority shareholders`
interest 492.1 455.5 465.0 433.4 456.6
Non-current
liabilities 2 124.0 2 026.4 2 124.0 2 026.4 846.0
Deferred taxation 546.6 573.3 546.6 573.3 574.3
Net borrowings 1 577.4 1 453.1 1 577.4 1 453.1 271.7
Current
liabilities 1 692.8 1 555.5 1 828.1 1 645.7 1 393.9
Accounts payable
and provisions 1 558.4 1 555.5 1 693.7 1 645.7 1 303.3
Financial
instruments 134.4 - 134.4 - 90.6
Total equity and
liabilities 6 274.7 5 743.8 6 274.7 5 743.8 4 468.2
OTHER SALIENT FEATURES
Operating
margin (%) 23.5 22.6 15.3 15.8 16.5
Gearing (%) 64.2 67.2 67.9 70.0 12.2
Interest cover
(times) 9.6 19.4 7.2 15.7 10.7
Net asset value per
share (cents) 703.7 620.0 664.9 594.1 638.7
Depreciation 92.4 72.7 92.4 72.7 140.4
Capital
expenditure 281.7 108.1 281.7 108.1 220.7
- expansion 200.6 62.1 200.6 62.1 90.5
- product registration
costs 7.6 3.7 7.6 3.7 5.5
- replacement 73.5 42.3 73.5 42.3 124.7
Capital
commitments 2 861.7 199.4 2 861.7 199.4 1 799.0
- contracted 873.3 44.0 873.3 44.0 29.2
- approved but
not contracted 1 988.4 155.4 1 988.4 155.4 1 769.8
Lease commitments 65.0 103.0 65.0 103.0 92.9
- land and buildings 19.3 36.0 19.3 36.0 30.6
- other 45.7 67.0 45.7 67.0 62.3
Contingent
liabilities 4.6 6.3 4.6 6.3 5.2
ABRIDGED GROUP CASH FLOW STATEMENT
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2007 2006 2007 2006 2007
Rm Rm Rm Rm Rm
Cash flows from operating and investing activities
Cash operating
profit 728.4 678.5 556.8 555.6 1 058.7
Working capital
requirements (1 382.2) (1 001.9) (1 210.6) (879.0) (61.0)
Cash (utilised by)/generated
from operations (653.8) (323.4) (653.8) (323.4) 997.7
Replacement capital
expenditure (73.5) (42.3) (73.5) (42.3) (124.7)
Financing costs, taxation
and dividend (433.0) (350.6) (433.0) (350.6) (608.4)
Net investment in
future operations (196.1) (71.2) (196.1) (71.2) (113.2)
Other movements 2.7 2.3 2.7 2.3 30.4
Net cash (outflow) / inflow
before financing
activities (1 353.7) (785.2) (1,353.7) (785.2) 181.8
STATEMENT OF CHANGES IN EQUITY
Share capital and share premium
Balance at beginning
of the period 354.5 298.4 354.5 298.4 298.4
Issue of new shares 3.0 55.3 3.0 55.3 56.1
Balance at end of
the period 357.5 353.7 357.5 353.7 354.5
Share-based payments reserve
Balance at beginning
of the period 10.9 8.1 10.9 8.1 8.1
Share-based payment
expense 0.7 2.7 0.7 2.7 2.8
Balance at end of
the period 11.6 10.8 11.6 10.8 10.9
Non-distributable reserves
Balance at beginning
of the period 146.3 122.1 146.3 122.1 122.1
Realised profit on
disposal of land 0.8 - 0.8 - 3.7
Effect of foreign
Currency
translation (41.9) 80.8 (41.9) 80.8 13.2
Effect of cash
flow hedges (4.5) (40.7) (4.5) (40.7) 7.3
Balance at end
of the period 100.7 162.2 100.7 162.2 146.3
Retained surplus
Balance at beginning
of the period 1 103.0 852.3 1 103.0 852.3 852.3
Realised profit on
disposal of land (0.8) - (0.8) - (3.7)
Transfer to dividend
reserve (114.8) (103.2) (114.8) (103.2) (262.1)
Net profit for
the period 393.8 327.9 285.6 259.8 516.5
Balance at end of
the period 1 381.2 1 077.0 1 273.0 1 008.9 1 103.0
Dividend reserve
Balance at beginning
of the period 157.0 144.6 157.0 144.6 144.6
Transfer from
retained surplus 114.8 103.2 114.8 103.2 262.1
Dividends paid (157.0) (145.1) (157.0) (145.1) (249.7)
Balance at end
of the period 114.8 102.7 114.8 102.7 157.0
Equity holders`
interest 1 965.8 1 706.4 1 857.6 1 638.3 1 771.7
Minority shareholders` interest
Balance at beginning
of the period 456.6 388.0 456.6 388.0 388.0
Effect of foreign currency
translation 12.0 24.9 12.0 24.9 13.1
Dividends paid (82.6) (47.1) (82.6) (47.1) (84.5)
Increase in
shareholding 2.7 2.9 2.7 2.9 2.7
Net profit for
the period 103.4 86.8 76.3 64.7 137.3
Balance at end
of the period 492.1 455.5 465.0 433.4 456.6
Total equity 2 457.9 2 161.9 2 322.6 2 071.7 2 228.3
SEGMENTAL ANALYSIS
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2007 2006 2007 2006 2007
Rm Rm Rm % Rm % Rm
BUSINESS SEGMENTS
Revenue
Sugar
production 1 720.1 1 672.1 2 490.6 73 2 348.1 72 4 410.7
Cane growing 985.1 910.4 682.9 20 671.2 21 1 344.8
Downstream 254.5 239.6 254.5 7 239.6 7 508.1
2 959.7 2 822.1 3 428.0 3 258.9 6 263.6
Operating profit
Sugar
production 295.0 224.8 325.6 62 336.5 65 605.6
Cane growing 350.8 380.4 148.6 28 145.8 28 341.0
Downstream 49.5 33.8 49.5 10 33.8 7 87.7
695.3 639.0 523.7 516.1 1 034.3
Total assets
Sugar
production 3 997.7 3 549.0 3 997.7 64 3 549.0 62 2 253.1
Cane growing 1 934.8 1 882.4 1 934.8 31 1 882.4 33 1 930.9
Downstream 342.2 312.4 342.2 5 312.4 5 284.2
6 274.7 5 743.8 6 274.7 5 743.8 4 468.2
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 1 172.7 1 175.2 1 594.0 46 1 477.5 46 2 824.1
Malawi 489.5 443.7 592.1 17 535.1 16 1 137.5
Zambia 529.4 484.9 543.6 16 592.3 18 1 053.1
Swaziland 428.4 370.7 338.8 10 321.7 10 612.8
Tanzania 165.1 176.9 231.2 7 232.6 7 423.3
Mozambique 174.6 170.7 128.3 4 99.7 3 212.8
2 959.7 2 822.1 3 428.0 3 258.9 6 263.6
Operating profit
South Africa 61.0 107.5 110.1 21 126.4 24 213.1
Malawi 313.4 179.8 209.5 40 171.6 33 408.5
Zambia 184.4 198.0 89.1 17 119.8 23 232.3
Swaziland 73.8 71.0 44.5 9 44.4 9 68.9
Tanzania 27.0 36.8 53.5 10 50.4 10 93.6
Mozambique 35.7 45.9 17.0 3 3.5 1 17.9
695.3 639.0 523.7 516.1 1 034.3
NOTES TO THE FINANCIAL STATEMENTS
Unaudited Audited
Six months ended Year ended
30 September 31 March
2007 2006 2007
Rm Rm Rm
1. Net financing costs
Interest paid 87.6 92.6 153.4
Interest received (18.4) (47.0) (27.8)
Foreign exchange
losses/(gains) 3.5 (11.6) (27.8)
Dividend income - (1.1) (1.4)
72.7 32.9 96.4
2. Material items
Profit on disposal of
Property 0.8 0.4 4.2
Material profit before
taxation 0.8 0.4 4.2
Taxation - - (0.5)
Material profit attributable
to shareholders
in Illovo Sugar Limited 0.8 0.4 3.7
DECLARATION OF DIVIDEND NO. 32
Notice is hereby given that an interim dividend of 33.0 cents per share has
been declared on the ordinary shares of the company in respect of the six
months ended 30 September 2007.
In accordance with the settlement procedures of Strate, the company has
determined the following salient dates for the payment of the dividend :
Last day to trade cum-dividend Thursday, 27 December 2007
Shares commence trading ex-dividend Friday, 28 December 2007
Record date Friday, 4 January 2008
Payment of dividend Monday, 7 January 2008
Share certificates may not be dematerialised / rematerialised between Friday,
28 December 2007 and Friday, 4 January 2008, both days inclusive.
By order of the Board
G D Knox Mount Edgecombe
Company Secretary 13 November 2007
Directors :
R A Williams (Chairman)*, D G MacLeod (Managing Director), M I Carr#*. G J
Clark (Australian), B P Connellan*, D Konar*, D R Langlands#*, P A Lister#*, P
M Madi*, I N Mkhize*, R A Norton*, J T Russell, M J Shaw*, B M Stuart, K
Zarnack
# British * Non-executive
Registered office:
Illovo Sugar Park, 1 Montgomery Drive, Mount Edgecombe, KwaZulu-Natal, South
Africa
Postal address:
P O Box 194, Durban, 4000
Website: www.illovosugar.com
Transfer Secretaries:
Link Market Services South Africa (Proprietary) Limited:
11 Diagonal Street, Johannesburg, 2001,
P O Box 4844, Johannesburg, 2000
Auditors:
Deloitte & Touche
Sponsor:
J P Morgan Equities Limited
Date: 14/11/2007 07:00:14 Supplied by www.sharenet.co.za
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